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I started a company about a year ago and signed on 2 investors each having % equity. We signed contracts stating that they are able to maintain equity if they work at least 12 hours a week on improving the company. After about a year the flame died out. Right before the wheels stopped turning I tried to get my investors interested in a new project but it didn't really have the impact I was hoping for. I presented the idea as a product of the company and when asked if it will be apart of their equity I said yes. However, they never followed through on it...then everything really died out. After a few months, I decided to take that idea and turn it into a completely separate company! I have done just that and I believe it will be a big success when we launch. I'm worried that my investors from the previous company will try and sue me for profits if the company is bringing in more than 7 figures annually later on down the road. If this became an issue later on down the road am I in trouble?

Asked on 10/23/13, 8:18 am

2 Answers from Attorneys

Hi and thanks for your question. This online forum is designed to give general legal information rather than analyze or give legal advice on a specific situation. The general legal principle here is that owners/ officers / members of a company owe a duty to that company (duties of loyalty, information, etc.) and generally cannot compete with it. If one member goes off and generates revenue separately by selling some product/service that could've been sold by the original company then yes, it triggers the possibility that profits will go back to the original company.

The answer to your question will likely require a detailed review of your governing documents (e.g., operating agreement) as well as any non-compete / non-disclosures the parties signed. I strongly encourage you to seek legal review on the specifics of your situation.

Buckle up, engage counsel, and wait for the lawsuit! Your question raises many issues about corporate opportunities, breach of contract, good faith, etc. Someone needs to read all your documents and interview you, in depth, before you can clearly appreciate the exposures. But your situation is familiar to anyone who handles business disputes.